Warning to Commercial Landlords: Don’t Withhold Consent to an Assignment of a Lease to Get an Advantage

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A recent decision by Justice Perell of the Ontario Superior Court of Justice in 6791971 Canada Inc. v. Messica, 2020 ONSC 1642, involved an Application commenced by a Tenant, for a determination as to whether its Landlord was unreasonably withholding his consent to an assignment of the lease to a new Tenant.

Unless a lease agreement contains an express stipulation to the contrary, where a lease contains a provision requiring the landlord’s consent to any assignment or sublease, then section 23 of the Commercial Tenancies Act applies – the lease is deemed to provide that the Landlord’s consent is not to be unreasonably withheld. 

The legal onus is on the Tenant to show that the consent has been unreasonably withheld. However, Courts will closely scrutinize the Landlord’s rationale for refusing to consent to the assignment, with a view to determining whether the Landlord is exercising its discretion reasonably and in good faith. A landlord will not be acting reasonably if its refusal to consent is merely capricious or is arbitrary in the sense of being without any reasonable ground. A Landlord will not be acting reasonably if its grounds for refusal are seen to be simply opportunism. Therefore, a Landlord may not use its refusal as a means to secure a new advantage such as higher rents or a more favourable lease. 

Each case is obviously decided on its own facts and “the question is not whether the Court would have reached the same conclusion as the landlord; the question is whether a reasonable person could have withheld consent.”

A Landlord that is approached by a Tenant seeking consent to an assignment should immediately seek out the advice and assistance of an experienced lawyer. As noted by Justice Perell, “In determining the reasonableness of a refusal to consent, it is the information available to – and the reasons given by the Landlord at the time of the refusal – and not any additional, or different, facts or reasons provided subsequently to the court – that are material.”